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Building society
A building society is a financial institution, owned by its members, that offers banking and other financial services, especially mortgage lending. The term building society first arose in the 19th century, in the United Kingdom, from co-operative savings groups: by pooling savings, usually in terminating deposits, members could buy or build their own homes. In the UK today building societies actively compete with banks for most banking services, especially mortgage lending and deposit accounts. As of 2008, there are 59 building societies in the UK (listed below) with total assets exceeding £360 billionBuilding Societies Association. Every building society in the UK is a member of the Building Societies Association. The number of societies in the UK has declined by a tenth during 2008 due to a series of mergers brought about, to a large extent, by the consequences of the financial crisis of 2007-2008. Origins The original Building Society was formed in Birmingham in 1774. Most of the original societies were fully terminating, where they would be dissolved when all members had a house: the last of them was wound up in 1980. In the 1830s and 1840s a new development took place with the Permanent Building Society, where the society continued on a rolling basis, continually taking in new members as earlier ones completed purchases, such as Leek United Building Society. The main legislative framework for the Building Society was the Building Society Act of 1874, with subsequent amending legislation in 1894, 1939 (see Coney Hall), and 1960. In their heyday, there were hundreds of building societies: just about every town in the country had a building society named after that town. Over succeeding decades the number of societies has decreased, as various societies merged to form larger ones, often renaming in the process, and other societies opted for demutualisation followed by - in the great majority of cases - eventual takeover by a listed bank. Most of the existing larger building societies are the end result of the mergers of many smaller societies. 1980s and 1990s In the 1980s, British banking laws were changed to allow building societies to offer banking services equivalent to normal banks. The management of a number of societies still felt that they were unable to compete with the banks, and a new Building Society Act was passed in 1986 in response to their concerns. This permitted societies to 'demutualise'. If more than 75% of members voted in favour, the building society would then become a limited company like any other. Members' mutual rights were exchanged for shares in this new company. A number of the larger societies made such proposals to their members and all were accepted. Some became independent companies quoted on the London Stock Exchange, others were acquired by larger financial groups. A movement arose whereby investors would open a savings account with a mutual building society, thereby getting voting rights in the society, and pressurise for a vote on demutualisation, with the intent of getting a windfall payment as a result. A number of societies' members and managers were very unhappy about such investors, who were termed carpetbaggers, maintaining that as mutual societies, they could supply better and cheaper home loans than the banks and demutualised societies, as they only had to make a profit to cover their operational costs, and had no need to generate an additional profit to return to shareholders. In the end, after a number of large demutualisations, and pressure from carpetbaggers moving from one building society to another to cream off the windfalls, most of the remaining societies modified their rules of membership in the late 1990s. The method usually adopted were membership rules to ensure that anyone newly joining a society would, for the first few years, be unable to get any profit out of a demutualisation. With the chance of a quick profit removed, the demutualisations have slowed considerably, as of December 2001. One academic study (Heffernan, 2003) found that demutualised societies' pricing behaviour on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. Deposits with building societies of up to £50,000 per individual are normally protected by the Financial Services Compensation Scheme. List of building societies in the United Kingdom that have demutualised Ten building societies of the United Kingdom demutualised between 1989 and 2000, either becoming a bank or being acquired by a larger bank.Building Society Takeovers and Flotations Building Societies Association website (Retrieved 5 April 2007) By 2008, every building society that floated on the stock market in the wave of demutualisations of the 1980s and 1990s has either been sold to a conventional bank, or been nationalised. List of building societies in the United Kingdom that no longer exist The following is an incomplete list of building societies in the United Kingdom that no longer exist, since they either merged with or were taken over by other building societies Building Society Mergers and Conversions since 1980 Building Societies Association website (Retrieved 5 April 2007). Remaining building societies in the United Kingdom The remaining building societies are: (Total group assets of building societies) Source: Building Societies Association *''' These societies do not form part of a corporate business group, although they may own other businesses. Other countries *'''Australia: In Australia, building societies evolved along British lines. Because of strict regulations on banks, building societies flourished until the deregulation of the Australian financial industry in the 1980s. Eventually many of the smaller building societies disappeared, while some of the largest (such as St. George) officially attained the status of banks. *'Finland:' In Finland the Mortgage Society of Finland, a permanent building society, was founded in 1860. Since 2002 mortgage loans are handled by Suomen AsuntoHypoPankki, the licensed bank owned by the society. *'Ireland:' In Ireland, the three building societies are as follows; EBS Building Society, ICS Building Society, and Irish Nationwide Building Society *'Jamaica:' In Jamaica, four building societies compete with commercial banks and credits unions for most consumer financial services. *'United States:' In the United States, savings and loan associations have a similar organisation and purpose. *'New Zealand:' In New Zealand, a number of building societies have been established. However the New Zealand finance company crash of 2006-2008 and the flow on from the credit crisis have lead to the consolidation, collapse and restructuring of many, notably Southland Building Society who moved in Oct 2008 to become a registered bank. References See also *Cooperative banking *Mutual organisation *Mutualism *Demutualisation *Banking in the United Kingdom External links *Building Societies Association *The History of Building Societies from the Building Societies Association website. * – Analysis after the last of the UK's demutualized building societies lost its independence Category:Building societies Category:Cooperatives Category:Financial services Category:Financial institutions Category:Mutual organizations Category:Social economy cs:Stavební spoření de:Bausparkasse ja:住宅金融組合 pl:Towarzystwo budowlane ru:Строительная сберегательная касса